Employer’s Ability to Pay

"But it's going to ruin us", says the client. "We can't afford to pay - we'll go bust."

It's never easy to hear a(n employer) client say that, and always slightly unreal saying that tribunals don't take an employer's ability to pay into account when assessing unfair dismissal compensatory awards. But at least we can now show them paragraphs 19 and 20 from this judgment, where the EAT states, with no equivocation, that the employer's ability to pay is not a relevant consideration.

It undoubtedly reflects tribunal practice and (the sparse) existing caselaw. Personally, I think this will change at some point. Section 123 of the Employment Rights Act 1996 requires the tribunal to award such sum as is "just and equitable in all the circumstances having regard to the loss sustained by the complainant." It doesn't say 'having regard only to the loss sustained by the complainant'. There is a powerful case for saying that one relevant circumstance is the impact a substantial award would have on the jobs of other members of the workforce. But for now, the law is clear. An employer's inability to pay is not relevant.

Daniel Barnett